The weaker-than-expected U.S. employment report helped trigger a flight-to-safety rally in the Dollar while driving investors out of commodity-linked currencies. Aversion to risk weakened U.S. equity and global commodity markets, helping to drive up demand for the lower-yielding Japanese Yen. All three major commodity-linked currencies – Australian Dollar, New Zealand Dollar and Canadian Dollar – suffered huge losses, leading to speculation that this trend is likely to continue next week.
The U.S. Dollar Index made a new high for the year, boosted by the sharp sell-offs in the Euro, British Pound and the commodity-linked currencies. Gains were limited slightly by the rise in the lower-yielding Japanese Yen.
The initial catalyst behind the U.S. Dollar’s rise on Friday was the news that Hungary is in the midst of a fiscal crisis of its own. This news caught many traders by surprise because most were focused on the upcoming U.S. Jobs Data Report. After the first thrust to the upside, gains were extended when the government reported that the number of jobs created during May fell far below the consensus.
Economist estimates were for an increase of about 513,000 new jobs. The U.S. Labor Department reported an actual increase of 431,000. This news was bearish in itself, but the traders were really surprised when the internals of the report showed that of the 431,000 new positions, 411,000 jobs were created by the U.S. government. This figure was primarily made up of short-term census workers.
The Euro pierced the psychological 1.20 support level, sending the single-currency to a 4-year low. The began its slide early Friday morning, driven lower by fresh fiscal problems from Hungary and a weak U.S. payroll figure. Concerns about Hungary’s fiscal situation initiated the break before the New York opening, while the U.S. jobs data helped accelerate the move to the downside. The market weakened throughout the day as traders shied away from risky assets, instead favoring the safety of the U.S. Dollar.
Technically the Euro remains in a downtrend. Friday’s move to the downside was likely sell stops following the initial plunge and fresh selling once traders became convinced the U.S. jobs data was bearish and the intra-day tone would remain bearish for the duration of the day. The longer-term monthly chart suggests the next likely downside target is the November 2005 bottom at 1.1638. Bearish traders are likely to defend the old bottoms at 1.2153 and 1.2143 in order to keep the pressure on the market.
Source: www.istockanalyst.com.
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